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PG Plc: Background Before the 1997 economic crisis, mini-canisters of cooking gas were not popular in Thailand. But the crisis changed the market environment, because with people having less purchasing power, lower-income groups preferred smaller and cheaper sizes. PG discerned that opportunity and made big profits from it. PG’s products were immensely popular among large numbers of low-income households and food sellers. In 2003, PG was listed on the SET obtaining its listing status by taking over a listed firm undergoing rehabilitation.

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PG’s Miracle PG Plc shares made the biggest one-day gain of listed firms undergoing debt-restructuring, rocketing a sensational 2,169 percent at one point on the first day of trade after a suspension of 19 months. Soon after the bell rang, PG's share price jumped to Baht21, up from Baht1.30 at its last close on June 8, 2001, and briefly touched a high of Baht29.50. In March 2005, its stock price trades at more than 10 times the original initial public offering (IPO) price.

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Questionable Transactions The payments for the usage of PG’s gas cylinders were moved from deposits payments for unlimited time use to a three-year rental fee causing the 178-million baht rental fee to become an expense item of the plants but an income of PG in 2004; PG sold liquefied petroleum gas (LPG) at a higher price per unit to plants with close relationships than to other customers. Consequently, PG earned approximately 1.7 billion baht from those gas-filling plants, accounting for 48 percent of the company’s LPG sales. The value of goodwill derived from the acquisition of subsidiaries in 2004 was unusually high.

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Initial Actions by Thai SEC Based on the evidence and PG’s explanation, the SEC has ordered PG to: 1.Appoint an auditor to do a special audit on all transactions between PG and the 10 gas-filling plants and others with close ties to ensure that PG’s financial statements are fairly and transparently presented and do not affect investors’ decisions. Moreover, PG’s Audit Committee must review the financial reporting thoroughly; 2.Reverse the gas cylinders rental income back to the deposit income account because PG’s gas cylinder rental fee is, in essence, the company’s deposit.

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Company’s Reactions PG denied control over those gas-filling plants and argued that the consolidation was unnecessary. Additionally, PG viewed that the goodwill value reported earlier was fair and accurate and therefore needed no adjustments. The SEC demands PG to submit the special audit report together with the amended financial statements for the year 2004 45 days (due on June 27, 2005). In addition, PG must disseminate its amended financial statements for the year 2004 with the special audit report attached.

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Alleged Corporate Fraud Accounting fraud –Injection of earnings: In the course of the investigation, it was also found that, in 2004, an executive of PG transferred a large sum of money into the gas-filling plants’ accounts, some of which was paid to PG as gas cylinders rental fee; Siphoning of corporate assets –Self-dealing transactions –Intra-group loans

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Legal Actions In October, 2005, public prosecutors filed a lawsuit in Bangkok South Criminal Court against PG and related individuals, including former managers of PG. The lawsuit was filed in accordance with the charges previously presented by the Department of Special Investigation (DSI).

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Critical Issues The enforcement (administrative) power of the Thai SEC. Reliance on criminal penalty only (affecting the burden of proof). The law was not written clearly. The speed of the legal process. Small investors’ lack of power. Reactions from the investment communities.